First Time Home Buyers Incentive gets failing grade from Kmiec

The Canada Mortgage and Housing Corporation’s (CMHC) First Time Home Buyers’ Incentive (FTHBI), targeted to help 100,000 home buyers, takes effect on September 2.

CMHC will contribute five percent of the downpayment for the purchase of an existing home or ten percent for a newly-built home. The contributions must be repaid when the home is sold, or within 25 years, whichever comes first. If the home has appreciated when sold, CMHC takes a piece of the profit as well. If the home has depreciated in value, CMHC takes a hit. Participants cannot have an annual household income of more than $120,000 and buyers putting down more than 20 percent are not eligible.

Speaking with Tom Strangward, communications specialist at BILD Calgary Region, in a recent podcast, Tom Kmiec, Conservative Party Member of Parliament for Calgary Shepard made it clear he is not a fan of the FTHBI.

“I have been a great critic of this first-time home buyers’ incentive from the beginning. It’s $1.25 billion of tax-payers money so the government can gamble on the real estate market and I think as a general rule it’s just a bad idea,” said Kmiec, who has also called for a restructuring of the B20 mortgage stress.

British Columbia had a program similar to the FTHBI, backed by $700 million of tax-payer money, but it failed said Kmiec.

“It was a homeowner equity mortgage partnership. They expected about 42,000, 43,000 people to take part in it and only about 3,000 people did and in 2018, they canned the program,” he said. “I think the federal government knows the experience that B.C. had and they’re trying to avoid some of the same problems in this program but the numbers just don’t add up. This 100,000 first time home buyers (CMHC says) will be helped over three years, (but) I can’t find anywhere where that number makes sense. You take the average price of a home or even the median price of a home and just an insured amount and I don’t get anywhere near 100,000 people helped by such a program.”

Kmiec doesn’t think any government should get into the business of business and taking stakes in peoples’ homes.

“It just seems like a really hard sell if you come up to someone and say ‘I’m going to give you five or ten percent as an incentive’ and it’s not considered debt according to the operational manual so it doesn’t count towards your debt servicing ratio, which is interesting because you’ve got to pay it back and that sounds like debt to me,” he said. “Today, usually your home is how you save money. It’s a forced savings tool, so when you come to sell your house you’ve probably built up a bit of equity and when you resolve the sale you’re hoping to be ahead a little bit, but the government is going swoop in and it’s going to take back five or ten percent of the value on the sale, which means any improvements you do to the house that raised its value, the government’s going to take a slice of the upswing and it’s also going to take a slice of the downside if something happens and that’s risking taxpayers dollars. The numbers don’t add up; I don’t trust the administration of the program and you can see in the policy manual they’ve got some kooky ideas they put together that just don’t make any sense to me and 1.25 billion is a lot of money to spend on this.”

Strangward asked Kmiec whether the government is too focused on FTHBI and not on the housing market in general.

“I asked every single stakeholder group and organization that represents realtors, brokers, builders, developers, ‘would the first-time home buyers incentive offset the impact of the B20 stress test and not one single organization anywhere in Canada would say this will offset the impact,” said Kmiec. “There’s a whole bunch of people out there who’ve been badly impacted by the stress test – widows who are paying more in mortgage interest than they need to when they were trying to refinance their mortgage with the rest of their debts. Young people who are going to B-lenders – I have stories from all across Canada of people who’ve been impacted. All those unforeseen consequences of big government having a big government solution to a problem that doesn’t really exist.”

With a general election coming in less than two months, Kmiec suggested there may be an ulterior motive in focusing on first time home buyers and not the stress test.

“I think they see an electoral kind of segment they want to appeal to which is why I have been repeatedly saying this is an election gimmick,” he said. “I said it way back in May and I’ll keep saying it – it’s an election gimmick as they try to pull the wool over peoples’ eyes. This not going to actually resolve any of the macro problems of the real estate markets and I always says real estate markets plural because there is more than one, they’re regional.

“Housing is really local and it’s very intimate decisions that people make and I just don’t think that people like the idea of sharing that decision with the government and asking for approval from the government to sell their house.”

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